Manufacturing Capacity Planning: The Key to Production Control

Managing production lines requires a high amount of control in order to keep things running smoothly and avoid downtimes and bottlenecks. However, there are always things that can go wrong and disrupt the effectiveness of your manufacturing process. Maintaining that high level of control and being able to create better scheduling depends on improving your manufacturing capacity planning.

Capacity planning, like many other production methodologies such as lean manufacturing, requires you to take a step back and look at your production process as a whole. When you can focus on your production planning and create an action plan, you are able to take back production control.

What Is Capacity Planning?

Simply put, capacity planning is a process that manufacturers can take that determines the exact production capacity that needs to be met in order to meet manufacturing demand. In other words, capacity planning allows a manufacturer to ascertain exactly how much available capacity needs to exist in order to accurately meet the output demands and active orders.

Manufacturing capacity planning is a necessary step for any company that wants to improve efficiency, save on costs, and increase profitability. Without an accurate system for managing your capacity and production, you’ll find yourself falling behind on orders, running the wrong product lines and machines, disappointing customers, and failing to manage your ordering and inventory. Successful manufacturing capacity planning allows you to take control of every aspect of supply chain planning from your scheduling to your inventory management.

Why Do Manufacturers Utilize Capacity Planning?

You might be wondering if manufacturing capacity planning is really a necessity for your business. After all, does knowing the amount you need to produce in the day really matter if you are running at full capacity?

The truth is that manufacturers need to have capacity planning in order to have control of their production lines. It impacts important areas of cost and allows you to have accurate knowledge of how many workers you need each shift, your ability to meet customer demands and the promises you can make to them on delivery and lead times, and what equipment you need.

It’s also important to note that there isn’t a one-size-fits-all solution to manufacturing capacity planning. Each company that uses capacity planning needs to take into consideration variables such as the number of machines they have, the size of the employee base that is needed to operate those machines, the available hours or shifts available, the mix of products to be made on the floor, how equipment is utilized, and the overall efficiency of the company as a whole.

With these considerations in mind, let’s go forward and look into the benefits of capacity planning and why businesses who struggle with capacity planning are missing out on important advantages in their planning processes.

The Benefits of Capacity Planning

Capacity planning helps manufacturers understand what their strategy for meeting demand is. It also helps them have a clear picture of what the costs and resources needed to meet their current demand will be and puts in place a structured roadmap to supply chain planning. A successful capacity plan will also help control maintenance planning and employee scheduling. Let’s examine a few more specific benefits of capacity planning.

Monitor and Reduce Costs

Controlling costs is a big part of running your manufacturing process. While different techniques like implementing lean manufacturing principles can help you reduce waste in the production process, capacity planning can go a step further. It helps you determine exactly what is required to meet, add to, or even decrease your current capacity so you can monitor and reduce costs as needed.

Scale With Ease

It’s a goal of nearly every company across the globe to grow in scale and become bigger. However, explosive growth can be extremely damaging to a company and have major impacts on cash flow and output. Scaling gradually ensures that you can grow with ease, and having a strong manufacturing capacity planning process can ensure that you grow in cost-effective ways.

Improve Customer Service

Customer service is a huge part of running a successful manufacturing operation. Keeping your customers satisfied with your products and promises helps to maintain their business, gain new customers, and improve your company’s reputation. When you have capacity planning in place, you can deliver customers their orders on time and give accurate lead times, so they never have to wonder where their products are.

Hire and Train With Intention

A major component of capacity planning is managing labor and attributing employees to different functions on the manufacturing floor. When you have accurate capacity plans, you can help your human resources hire the right number of employees and train them for the specific functions they will be performing on the line. That helps HR improve their intentions and get the best employees for the job.

Boost Profitability

Companies that don’t have a capacity plan often struggle with gaps in production, demand, and resources. All of that leads to slowdowns, bottlenecks, and even complete shutdowns to address and fix issues. When you aren’t operating efficiently, you lose revenue and profit. Having capacity planning in place boosts profitability and increases revenue.

Improve Efficiency and Increase Capacity

When manufacturing capacity planning is in place, efficiencies improve and you have a better picture of the capacity you are capable of reaching. That allows you to identify areas in which you can increase capacity and find room for continuous improvement. With the right tools, like software, dashboards, and real-time machine monitoring at your side, you can create new improvements and help the business succeed.

Manufacturing Capacity Planning: How It Works

Now that you understand why manufacturing capacity planning is important in your organization, let’s look deeper into how it works and how you can start creating a strategy for capacity planning. Manufacturing capacity planning is automated through software that is directly linked to supply chain planning, allowing decision-makers to observe capacity at different key operational levels.

Capacity planning is closely linked to demand forecasting, which is the process of analyzing past sales patterns to predict future sales. After demand is forecasted using analytics software, capacity planning helps to manage the structure for meeting those forecasts. Together, these techniques help you organize and control your manufacturing process.

Before We Start: Understanding Cost Constraints Is Key

Before we dive into the steps needed to implement capacity planning, we first need to understand the cost constraints that you have in your company. In order to accurately plan for capacity, you need to accept that the constraints are going to limit what steps you can take to meet your production goals. Those cost areas that impact capacity planning include:

• Operating costs: If your demand is over what your capacity is capable of producing, you might have to revisit operating costs. That might mean adding in shifts or offering overtime to employees to meet the demand. You also might need to look at ways to reduce operating costs, like stopping certain machine runs or cutting labor.
• Fixed costs: Without a clear picture of capacity, you can find yourself losing money on fixed costs like your warehousing. If you have too much space that isn’t being utilized, you can be wasting money in areas you didn’t expect. The capacity plan can help you know if your fixed costs are being wasted and how you can move to improve them.
• CAPEX costs: Capital expenditure, or CAPEX costs, refer to the capital investments made in things like equipment to meet demand. If you don’t understand your capacity or have a plan in place, you can over- or underspend on capital expenditures, leaving you forced to outsource to meet production demands or with equipment that doesn’t fit into your production needs.
  
  

Step 1: Establish Variables

As mentioned above, there are different variables that you need to keep in mind while developing a manufacturing capacity plan. These variables will determine the steps you need to take to improve your production capacity planning and the factors that play into your strategy. Variables include:

• Capacity: The maximum level of output that your company is able to deliver for specific products or product lines on the manufacturing floor
• Efficiency: How effective you are at meeting demands, reaching capacity levels, organizing and managing employees, and maintaining machines
• Run hours: The hours you have planned into every day that are scheduled for production. It’s the total amount of hours that your machines are running and producing.
• Utilization: How many different assets are used in manufacturing and the amount of time that equipment is being run and utilized on the production floor.
• Move hours: Otherwise known as move time, this refers to the time it takes to move to a different workstation or move things in and out of the manufacturing area while setting up machines.
• Offset hours: Hours in which products are tested, assembled, or moved that aren’t attributed to running hours and new production

Step 2: Choose a Measuring Capacity

Measuring capacity refers to the measurement of production rates on the manufacturing floor. They help you understand the effectiveness of your production and manufacturing systems and give you a baseline for determining whether capacity is performing efficiently or if there are areas of improvement. Measurement capacities can include:

• Design capacity: This is often referred to as the optimal production situation where the maximum output possible for production equipment and resources over specific periods of time is calculated. This helps calculate the efficiency and utilization of capacity across the organization.
• Effective capacity: Effective capacity calculations look at the product mix, changes to the product mix, predicted maintenance of machines, and disruptions to raw materials and labor. Taking all these factors into consideration, effective capacity then calculates the maximum capacity when disruptions occur.
• Actual output: The actual output calculation is the real output that your production lines were able to achieve over a set period of time. This helps you calculate exactly where areas of improvement are and how far short you fall from predicted manufacturing outputs.
  
  

Step 3: Define Your Strategy

Now that you know the measurements and calculations for capacity planning, it’s time to start putting together a strategy that can help you meet your demands.

Whichever strategy you choose will need to be accepted by different decision-makers and parties that have an influence on the production line, including your supply chain managers and your manufacturing managers. When all parties buy into the strategy, you know that they are operating with the same methodologies and knowledge bases. Common strategies include:

• Lead capacity strategy: As the name entails, lead capacity strategies plan for capacity before demand comes in. That allows you to stay ahead of demand so that you are prepared for when demand hits. It can be helpful for planning ahead of seasonal demand, demand curves, or other times when you know that there will be increases in the production demand in your business.
• Lag capacity strategy: Lag capacity strategies work the opposite of a lead capacity strategy. Rather than increasing capacity ahead of demand, you wait until the demand has come in and then add capacity, which can help you avoid over-budgeting on financial investments and can reduce waste. However, it can create slowdowns if you need to increase capacity but have to wait for the capital expenditure to come in for equipment and labor.
• Match capacity strategy: Small businesses or medium-sized businesses that work with limited cash flow and want to have strong control over their growth might be interested in match capacity strategies instead of lead or lag capacity strategies. Match capacity uses small, incremental increases in overall capacity over time as demand volume increases. This helps you manage the increase in capacity and balance costs more effectively.
  
  

Step 4: Select Your Technique

Once you’ve decided on your strategy and have buy-in from your decision-makers, it's time to look into the different techniques that can be used in manufacturing capacity planning. While some techniques might require less upfront planning, they can all move you forward with capacity planning to different levels of success. Techniques can include:

• Capacity using overall factors: This technique uses manual planning instead of software systems to combine both a master schedule and your production standards. These two factors are used to understand the transition from finished products to historical production metrics.
• Capacity bills: Similarly to overall factor capacity planning, capacity bills are a manual method that uses bills of material like routing sheets to determine the different working factors of a production floor.
• Resource profiles: A final manual method of manufacturing capacity planning is using resource profiles to plan your capacity. Resource profiles use the same information from capacity bills but add lead time information to the technique.
• Capacity requirements planning: In order to have the most successful manufacturing capacity planning, you need to invest in tools like MRP or ERP, otherwise known as material requirements planning and enterprise resource planning respectively. These software tools will automate information from all of the above techniques and integrate data across your entire organization to give accurate capacity and demand numbers, lead times, and real-time production and inventory values.
  
  

Step 5: Proceed With Capacity Planning

After you’ve determined all of the preceding information, you can go ahead and proceed with your manufacturing capacity planning. That requires you to take into consideration a few different steps that will help you finalize your plan and allow you to implement your capacity planning initiatives.

• Reflect on existing capacity and capabilities: It’s important that you understand your current benchmarks and capacity capabilities before you move forward. That means collecting information about your current run hours, available shifts, equipment capabilities, vendor performance, lead times, and inventories.
• Develop an accurate demand plan: In order to ensure that you are planning your exact capacity, you need to have an accurate demand plan in place. Your demand forecasting and supply chain planning need to be tied to software that can give you aggregated forecasting and disaggregated operations.
• Identify opportunities to modify capacity: Once you’ve been able to see where your current capabilities are and have your demand plan in place, you can identify new opportunities to modify capacity. This could mean adding in shifts, sub-contracting to meet demands, finding capital to purchase new equipment, or finding areas of waste that can be optimized and improved upon.
  
  

Common Capacity Planning Challenges

While capacity planning is essential to running a functional manufacturing operation, there are some common challenges that businesses will run up against. Each company will have different needs based on their size and geographic region, but some issues that most businesses will face include:

• Organizational complexity: Some organizations are extremely complex and have many different structures that need to be taken into consideration while working on manufacturing capacity planning. Keep in mind the different branches, divisions, and facilities of your business while working through the steps of capacity planning.
• Quality control: Testing products and running quality control procedures can add complications and slowdowns to your capacity outputs and demand structures. However, maintaining quality control is key to customer satisfaction.
• Machine breakdowns or downtime: Machine errors and maintenance can cause unexpected downtime on your production schedule. Major breakdowns can even shut down production for a time.
• Data collection: The data in your organization is likely to be widespread and kept in different areas. In order to be accurate in your manufacturing capacity planning, you’ll want to find a way to sync data and collect it in a single place to avoid errors and preserve the integrity of your data.
• Operational factors: Your employees are a large part of your operation, and as human beings, there will be issues like fatigue, sickness, vacations, and errors that you will need to account for. Keep those adjustments in mind while working on your capacity management to avoid complete shutdowns and unexpected bottlenecks.
• Supply chain issues: The supply chain is a very complex system, and new laws and regulations constantly make changes to the logistical factors you need to consider while planning capacity.
• Lack of MRP: Accurate manufacturing capacity planning is almost impossible without an MRP system for data automation. That system calculates many complicated factors and uses data that can’t be effectively captured and accounted for by manual human efforts.
  
  

Improve Capacity Planning Accuracy With Machine Monitoring

Manufacturing capacity planning is essential for businesses that want to manage and control their production capabilities while reducing costs and meeting demand. Machine monitoring can help you avoid unexpected downtime, which helps you more accurately plan your capacity output and create a better system for capacity planning.

Click on the link above to learn how Amper’s machine monitoring solutions can help your business succeed and give you the tools you need to create your manufacturing capacity planning with accuracy.